Symantec is rumoured to be considering a second split of the company in 2017, as innovation delays and executive departures stifle the vendor’s quest to reinvigorate its security market leadership.

Fresh from reporting its first quarter without information management unit Veritas, the return to pure-play status was meant to reinvigorate the company’s revenue growth as it aimed to leverage its historic security brand and address new demands in the fast-growing security market.

But disappointing first quarter financial results reflected the many challenges in its way.

After reporting revenue of $US873 million in 1Q16, a decline of 2.9 percent year-to-year, the embattled tech giant also revealed plans to cut its global workforce by 1,200 staff, coupled with the impending departure of Michael Brown as CEO.

“Although Symantec has one of the largest security customer bases in the world, the relatively slow pace of security innovation and continued organisational disruption at Symantec are draining customer confidence in the vendor and will lead to more declines for at least the next two quarters,” Technology Business Research Principal Analyst, Jane Wright, said.

Consequently, Wright said Symantec’s board of directors will consider splitting the company into two entities, positioning one for acquisition in 2017.

“Symantec’s development strategy, cost-cutting program and executive departures led to its failure to meet its revenue guidance and its reported year-to-year revenue decline in 1Q16,” Wright observed.

“Unlike competitors that have used acquisitions to quickly bring new security technologies to market, such as Cisco and IBM, Symantec has spent the past year developing most of its new security products and services organically.

“This strategy combined with an aggressive and ongoing expense reduction program caused Symantec to be relatively late to market with its advanced threat protection solution for the enterprise security segment.”

“Symantec’s portfolio road map calls for a number of new offerings to be delivered from the cloud over the next two years. In the meantime, the vendor is absorbing the impact of declining license revenue.”

For Wright, this scenario is not unique to Symantec however, with other vendors, such as IBM and FireEye, also rushing to expand subscription-based offerings to offset on-premises security software license revenue declines.

While the spending shift creates headwinds for Symantec and other vendors, Wright claimed the shift to subscription-based enterprise security solutions will lead to greater sales efficiency and more attached services revenue over the next two to three years.

According to Wright, Symantec’s recent performance and current strategies point to a possible split and sell-off in the company’s future.

“Although Symantec is profitable, its financials and investment strategy reflect a company in financial turmoil,” Wright said.

“The company received approximately $US3.5 billion (following a price adjustment and its equity contribution) from the sale of Veritas and took in another $US500 million investment from Silver Lake Partners in 2015.

“Symantec’s board of directors did not invest these savings and new funds in acquisitions that could have created many new opportunities for the vendor. Instead, the board opted to return money to stakeholders and continue its belt tightening.”

Wright said Symantec’s ongoing financial declines, investment choices and management changes (for example, the interim CEO replacing Brown was previously an officer at Silver Lake) creates an environment that will “compel” Symantec’s leadership to consider splitting the company into two companies, one focused on enterprise security and the other focused on consumer security solutions.

“We believe Symantec will evaluate offering its enterprise security business unit for acquisition while continuing to earn a strong profit from its consumer security business unit,” Wright claimed.

“Although such a move would be disruptive in the short term, it could restore enterprise customer confidence in the long term, especially if the acquiring company has a history of successful security acquisition integrations, such as Cisco or IBM.”

Looking ahead, Wright said Symantec’s channel strategy in 1H16 will emphasise recruiting expert security reseller partners that have a strong understanding of these strategic security areas.

“Symantec will continue to motivate channel successes in other ways, such as making it simpler for partners to achieve gold and platinum status and increasing financial incentives that drive growth within its reseller partner ecosystem,” Wright added.

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